Rick Perry's Bizarro World tax plan

by Matthew DeBord

Share

I honestly didn't think anyone could — or would — come up with a worse plan for U.S. tax reform than Herman Cain did with his 999 proposal. But Texas Gov. Rick Perry just released his "Cut, Balance and Grow" plan, which is also being referred to as the "20-20" plan, echoing Cain's 999. The difference is that Perry replaces Cain's 9 percent flat income and corporate taxes with a 20 percent flat tax for both. But there's more! And just in time for Halloween, it's...terrifying!

I'd like to call it stupid, but ridiculously stupid would be better.

The plan has four key pieces:

Americans will be able to choose between the current tax system and the 20-percent flat tax.

Corporations will see their tax rate cut from an average of 35 percent under the current system to a flat 20 percent with Perry's plan.

Federal spending would be capped at 18 percent of GDP, which Perry argues is the average since 1960. This will, he insists, balance the budget by 2020.

Workers would be able to opt out of Social Security.

Cain's 999 plan at least aims to replace the current tax code. Perry's plan sets up a parallel tax and social insurance system (focused on individual accounts) that overwhelmingly favors wealthy individuals. It also eliminates Cain's 9 percent flat sales tax — which the Hermanator included to make up for all the lost revenue that his two other 9s would impose.

Basically, if you're un-rich, you're not going to go for the 20 percent flat tax. You'll stick with your existing 15 percent, if you earn less than $34,500. If you make more than $379,150 and pay 35 percent, you'll jump at the 15 percent tax cut to 20. You'll also love the elimination of capital gains taxes and estate taxes. Perry's plan is a bold formula for ensuring dynastic wealth. At a nefarious level, it sets up those who could pay less than 20 percent to be dragged into that category, as the old progressive systems withers.

I don't think I've ever seen a flat-tax scheme that didn't start with the bottom before furtively admitting that it's all about the top. Perry's flips that on its head and, given time, could easily constitute a 5-10 percent tak hike on the poorest Americans.

On Social Security, Perrynomics is an attack on the way the existing system is set up. As constituted since the 1930s, the plan is a pay-as-you-go scheme, with current workers paying in so that benefits can be paid out to retirees. Whatever surplus exists goes into a long-term solvency fund that's invested in U.S. Treasuries. Current workers aren't socking away their payments to tap at a future date — they're relying on the steady inflow of new workers to keep them out of poverty in their Golden Years (this is why critics erroneously label it a Ponzi scheme). Fundamentally, Social Security isn't about "me." It's about "us." But Perry wants to phase that out, fulfilling a dream that Republicans have nurtured since 1942.

So with Perrynomics, you get a parallel tax system that favors the rich and an opt-out clause for Social Secutiry that would doom the program.

But those two features aren't the worst part of Perry's plan!

The 18-percent-of-GDP spending cap is. It would lock the government into pursuing a balanced budget, even when a balanced budget might be a disaster. The fact that federal spending as a percentage of GDP has averaged 18 percent since 1960 means just that — it's averaged 18 percent. When financial crises large and small have messed with the economy, the government has stepped in to raise that spending to make up for lost demand. This doesn't prevent recessions. But it takes the rough edges off.

Perrynomics would say goodbye to the government's chief fiscal tool, on the assumption that growth, unbridled by taxation, would somehow ensure that the economy always self-corrects.

I haven't said anything about the Bizarro World of Perry's proposed 20-percent corporate tax because...a 15 percent corporate tax cut, from the current 35 percent, might actually make sense right now. And it would be easy to tell. Because corporations would then start hiring and unemployment would fall. On this single point, Perrynomics is an improvement on Hermanomics. But only because it provides a clear path for corporations to stop hoarding cash and start putting more people to work.

Previously in The Breakdown

The Breakdown explains what's behind Southern California business and economic news. It describes the effects the headlines have on you: whether you're an investor, a business owner, an employee, homeowner, consumer or just someone who wants to know how to save a buck.